Compensation Related Costs, Share Based Payments

9 Months Ended

Sep. 30, 2011

Compensation Related Costs, Share Based Payments

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

5. Equity-Based Compensation

On January 1, 2010, the Company’s board of directors approved a stock plan.  The stock plan known as the 2010 Stock Plan (the “Plan”) reserves up to 15,000,000 shares of the Company’s authorized common stock for issuance to officers, directors, employees and consultants under the terms of the Plan.  The Plan permits the board of directors to issue stock options and restricted stock.   

The fair value of each option granted under the Plan is estimated on the date of grant, using the Black-Scholes option pricing model, based on the following weighted average assumptions:

Expected life	1.0 - 5  years
Expected stock price volatility	71.10 – 115.90	%
Expected dividend yield	0.0	%
Risk-free interest rate	0.34 – 1.94	%

The risk-free interest rate is based upon the U.S. Treasury yield curve at the time of grant for the respective expected life of the option. The expected life (estimated period of time outstanding) of options was estimated using the simplified method for each option under ASC 718-10-S99-1 with the expected term equal to the weighted average of the vesting period and expiration date.  The Company was unable to rely on historical exercise data due to the early stage of the Company and no historical exercise data.  The simplified method was applied to all options for all periods presented. The expected volatility of the Company’s options was calculated using a blend of Company’s historic data and historical data of comparable companies in the Company’s industry. Expected dividend yield was not considered in the option pricing formula since the Company does not pay dividends and has no plans to do so in the future. If actual periods of time outstanding and rate of forfeitures differs from the expected rates, the Company may be required to make additional adjustments to compensation expense in future periods.

The Company recognized compensation expense on the cancelled and reissued options in accordance with ASC 718 as of the issue date, with any additional incremental costs on subsequent reissuance. 

The Company recognized $881,341 of compensation expense for 5,160,000 options that were issued on April 13, 2011 with immediate vesting with a $0.21 strike price.  The options were cancelled and re-issued on May 6, 2011 along with an additional 36,000 options with immediate vesting and a $0.12 strike price.  The Company recognized $39,403 in incremental cost associated with the 5,160,000 reissued options and $3,945 for the additional 36,000 options.  The options were then cancelled and reissued on July 28, 2011 with immediate vesting and a strike price of $0.045.  The Company recognized $29,381 in incremental cost associated with the reissued options.

	Shares	Weighted Average Exercise Price
Outstanding, January 1, 2011	9,261,000	$	0.34
Granted	10,392,000		0.08
Expired/Cancelled	(6,386,000)		0.28
Exercised	-
Outstanding, September 30, 2011	13,267,000		0.20
Exercisable	6,404,750	$	0.14

		Weighted Average
Range of Exercise	Number Outstanding	Remaining	Number Exercisable at
Prices	at September 30, 2011	Contractual Life	September 30, 2011
$                                     0.04	5,196,000	4.92	5,196,000
$                                     0.25	8,055,000	1.62	1,208,750
$                                     0.75	8,000	2.40	-
$                                     1.10	8,000	3.75	-

	Nonvested Shares		Weighted Average Exercise Price
January 1, 2011	9,261,000	$	0.34
Granted	10,392,000		0.08
Vested	(6,404,750)		0.14
Forfeited	(6,386,000)		0.28
Nonvested at September 30, 2011	6,862,250	$	0.25

Option-based compensation expense totaled $57,562, and $1,116,624 for the three and nine months ended September 30, 2011 respectively. As of September 30, 2011, the Company had $511,748 in unrecognized compensation costs related to non-vested stock options granted under the Plan.